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Market rocked by Government announcement -

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Market rocked by Government announcement

The World Today - Tuesday, 7 April , 2009 12:14:00

Reporter: Michael Vincent

PETER CAVE: The National Broadband Network has been received with astonishment and amazement by
market analysts.

Astonishment at the upfront cost and concerns about the network's future commercial viability, and
on the other hand, amazement that the Government has finally had the gumption to take on Telstra
and to provide high-end technology to all Australians.

Michael Vincent reports.

(Sound of Telecom advertisement)

MICHAEL VINCENT: It wasn't so long ago that the Australian Government owned a company that put
cables in the ground.

(Sound of Telecom advertisement)

Today most Australians have three options for accessing the Internet.

Copper wire - also known as the old home phone line, now sometimes called DSL or ADSL.

Then there's coaxial cable - which is the thick black line also used for pay television.

And lately there's been a move to wireless, which also uses the mobile phone network.

The Government is now proposing new cables to your house - a 'fibre to home' network.

And if you live in the regions, you'll get upgraded wireless.

But not everyone is impressed.

IVOR RIES: (Scoffs) I've got no idea what's driving the Government to do this.

I mean, they're saying a network that will deliver, you know, 100 megabits per second, that would
exceed current household consumption by a factor of 100 times, so he's obviously planning to build
this network for the year 2050.

MICHAEL VINCENT: Ivor Ries is an analyst with E L & C Baillieu stockbroking.

He says speeds of 100 megabits per second - which is what the Government is proposing - allows you
to download several channels of television at the same time.

IVOR RIES: You know, what it will do is create a market for people selling downloads to homes, so
people selling movies and those sorts of things for downloads to homes will obviously be big
winners from this.

But, you know, is it going to provide some sort of magic shot in the arm to productivity? Probably
not.

PAUL BUDDE: No you have to look at it in a totally different situation.

MICHAEL VINCENT: Telecommunications analyst, Paul Budde, says Australians are getting top-level
technology without waiting for a commercial company to provide it - even if home use will be
limited on the new network.

PAUL BUDDE: You talk about the use of the infrastructure, not just for Internet access. You talk
about healthcare, you talk about education, you talk about all sorts of services, you know, that
have nothing to do with Internet access.

MICHAEL VINCENT: The question remains - what if Australians prefer wireless Internet access in the
future?

Ivor Ries says the new network is only financially viable if 80 per cent of Australians want to use
the new cables.

IVOR RIES: If they get only 60 per cent of the population using it, and people preferring wireless
over this new cable, then the monthly access fee they're going to have to charge people will be
prohibitive.

At the moment, the average Australian household is spending about $40 a month on accessing the
Internet. And that's sort of, you know, a typical package is about $40 a month.

Whereas this proposal will require, you know, the average household to be paying somewhere round
about $75-$85 a month, so you're talking there about a sort of $35 to $45 a month increase in the
cost of basic access for the average household.

MICHAEL VINCENT: The Government actually made two major announcements today.

The big carrot is the National Broadband Network Corporation.

The big stick is the regulatory reform paper the Government announced at the same time.

Paul Budde.

PAUL BUDDE: The big loser is Telstra, because you know, Telstra should have taken the lead, and
should have been the leader so that this wasn't necessary, what the Government is doing now, yeah?

It has manoeuvred itself out of the process; you know, if you've seen the regulatory document it
absolutely doesn't give Telstra any room to do anything.

You know, if Telstra is not careful, you know, its whole network will be totally overbuilt by a
much more interesting network, and it's left out dry there.

MICHAEL VINCENT: Telstra's issued a statement saying it welcomes the Government's decision, and it
says it looks forward to having constructive discussions with the Government at the earliest
opportunity.

The smaller providers are very happy.

The Competitive Carriers Coalition is a group which includes Australia's third largest Internet
provider iiNet, as well as AAPT, Internode, Primus and Hutchison.

Its executive director is David Forman.

DAVID FORMAN: I think it's clearly a very visionary approach that the Government's taken.

It is a real - in a technology term - it's a real leapfrog.

Everybody's business plan is going to have to be completely changed because we're moving to a
different technology; a future technology that people aren't using at the moment.

Different people will respond more quickly and will respond better, depending on how open-minded
they are in terms of moving to that technology.

But I don't think you can say that Telstra is suffering any disadvantage against anybody else.

In fact, the very fact that they have so many customers at the moment means that they're in the
best position of anybody to benefit from that change.

MICHAEL VINCENT: But if Telstra has invested, as it says it has, in major infrastructure to go to
people's homes and put the cabling down the street today, don't you think they're going to suffer
if the Government comes along and does that anyway?

DAVID FORMAN: Well, Telstra hasn't invested in rolling the copper network out.

The copper network was built originally by the taxpayer.

It was built over a period of 30 or 40 years by taxpayers.

And then it was transferred into a company that was created and called Telstra.

So what we're seeing now is the next generation of technology, the one that will eventually replace
that copper, again being bought by the taxpayer but in a different vehicle.

PETER CAVE: David Forman, the executive director of the Competitive Carriers Coalition, ending that
report from Michael Vincent.